Rating Rationale
June 28, 2019 | Mumbai
Aditya Birla Capital Limited
Rating Reaffirmed 
 
Rating Action
Rs.2700 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating to the commercial paper of Aditya Birla Capital Limited (ABCL).

The rating centrally factors in the expectation of strong support to ABCL from its parent, Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'), and the benefits the company derives from being part of the Aditya Birla group (ABG). This is based on Grasim's majority ownership in ABCL and the importance of the financial services business to the ABG. The ratings also factor in the diversified presence of ABCL across the financial services space and its adequate capitalisation. However, the company's overall earnings profile is lowered by low profits in some of the businesses which are in nascent stage of operations including losses in the recently launched health insurance business.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of ABCL and its subsidiaries, including Aditya Birla Finance Ltd (ABFL), Aditya Birla Housing Finance Ltd (ABFHL), Aditya Birla Sun Life Asset Management Company Ltd (Aditya Birla Sun Life AMC), and Aditya Birla Sun life Insurance Company Ltd (Aditya BIRLA Sun Life Insurance). The companies, collectively referred to herein as the ABCL group, have significant operational and management linkages, and operate under single brand 'Aditya Birla Capital'.

Key Rating Drivers & Detailed Description
Strengths:
* Strategic importance to, and expectation of strong support from, the parent and benefits derived from being part of the ABG
Grasim is the majority shareholder and directly owns 55.98% of ABCL's equity shares, with another 16.76% owned by other promoters and the promoter group. Grasim has key personnel from its senior management on ABCL's board, including the chairman. ABCL also benefits from being a part of ABG group. ABCL is the group's holding company for financial services, and remains critical, given the growth opportunities in this sector. CRISIL believes Grasim will continue to have majority ownership in ABCL, and that financial services will remain the key focus area for Grasim and ABG, over the medium term. 
 
* Diversified presence in the financial services space
ABCL is the holding company for the financial services business of ABG and holds majority stake in various subsidiaries which operate mainly in the commercial and retail finance, housing finance, asset management, and life and health insurance businesses. ABCL also has presence in securities broking, wealth management, private equity, and insurance broking. The group has successfully scaled up and gain leading market position in some of the business segments like lending (ABFL), asset management and life insurance.

ABCL has a strong market position in the lending business with ABFL being among the larger diversified non-banking financial companies (NBFCs) with assets under management (AUM) of Rs 51,714 crore as on March 31, 2019. ABFL offers various products such as LAP (loan against properties), project loans, and working capital loans to customers ranging from retail, high networth individuals (HNIs), ultra HNI, small and medium enterprises (SMEs), to mid and large corporates. Through ABHFL, ABCL entered the housing finance business (commenced in October 2014) and has a loan book of Rs 11,405 crore as on March 31, 2019.

ABCL also has strong presence in the asset management business through Aditya Birla Sun Life AMC. It is the third largest asset management company (AMC) in India (Excl. ETF) with market share (Excl. ETF) at 10.57% and domestic AUM of Rs 248,075 crore as on March 31, 2019. ABCL (through Aditya Birla Sun Life Insurance) also has a meaningful presence in the life insurance business, and is a leading private sector life insurance company in India. Through its securities broking entity Aditya Birla Money (Aditya Birla Money Ltd; 'CRISIL A1+'), ABCL offers a wide range of solutions including broking, portfolio management services, and depository services. ABCL recently entered the health insurance business through Aditya Birla Heath Insurance and has a unique business model of providing health insurance with active customer engagement for driving healthy behaviour and managing customer experience. ABCL has also received licence for setting up an asset reconstruction company (ARC) to commence its operation in fiscal 2019.
 
* Adequate capitalisation
ABCL has adequate capitalisation, with an absolute networth (on a consolidated basis) of Rs 10,670 crore as on March 31, 2019 (Rs 9,594 crore as on March 31, 2018). In the lending business, both ABFL and ABHFL remains adequately capitalised with total capital adequacy ratio of 17.5% and 16.8%, respectively, as on March 31, 2019 (17.9% and 14.3%, respectively, as on March 31, 2018), and gearing of 5.8 times and 8.5 times, respectively (5.8 times and 9.5 times, respectively as on March 31, 2018). Also Aditya Birla Sun Life Insurance remains adequately capitalised for the current and proposed scale of operations. ABCL's consolidated gearing is expected to remain around 5-5.5 times over the medium term.

ABCL is also adequately capitalised to absorb asset-side risks in the lending business, as indicated by networth coverage to net non-performing assets (NPA) of 17 times and 28 times for ABFL and ABHFL, respectively, as on March 31, 2019. CRISIL believes that despite the significant growth plans in the lending business, ABCL's capitalisation will remain comfortable, considering its flexibility to raise capital and expected increase in internal accrual of its operating subsidiaries over the medium term.

Weakness:
* Overall earnings profile is lowered by low profits in some of the businesses which are in nascent stage of operations including losses in the recently launched health insurance business.
ABCL's standalone revenue primarily comprises dividend income from its asset management and insurance businesses. Contribution from the other two large investments, ABFL and ABHFL, will remain muted as they are in growth phase and will require additional funding support in the near to medium term. At a consolidated level, ABCL return on assets (RoA) and return on equity (RoE) was at 0.8% and 8.0%, respectively, for the fiscal 2019 (0.8% and 7.6%, respectively, in fiscal 2018). Earnings of the ABCL group remain well diversified across lending, insurance, and AMC businesses, resulting in a good mix of fund-based and fee-based revenue. However, some of the businesses that are in the nascent stage are reporting low profits; health insurance is loss-making and housing finance has turned profitable only from the second quarter of fiscal 2018. CRISIL believes ABCL's profitability will improve gradually over the medium term as these businesses also start contributing to profits.
Liquidity

Liquidity is adequate at ABCL (standalone) with dividend income from operating subsidiaries and high flexibility to raise funds from the market driven by strong brand name of ABG. ABCL's (standalone) borrowing is primarily in the form commercial paper of Rs. 1,440 crore outstanding as on March 31, 2019. In lending business, group maintains adequate cash and cash equivalent and also maintains unutilised bank lines of Rs. 6,390 crore as on March 31, 2019 to cover upcoming debt repayments. Assets and liabilities were well-matched (including committed bank lines) with a positive cumulative surplus upto 1 year bucket as of March 31, 2019 for both ABFL and ABHFL. Further, even in the current market conditions, ABCL and its subsidiaries have been able to raise ample resources from both banks as well as capital markets.

About the Company

ABCL is the financial services businesses platform of the ABG. The company has been registered with the Reserve Bank of India as a systematically important, non-deposit-taking, core-investment company (CIC-ND-SI). ABCL provides end-to-end financial services to both retail and corporate customers and has a presence across life insurance, asset management, private equity, corporate lending, structured finance, project finance, general insurance broking, wealth management, security broking, online personal finance management, housing finance, pension fund management and health insurance business. The group has more than 18,000 employees and a nationwide reach through 850+ branches and more than 2,00,000 agents / channel partners.
ABCL (on a consolidated basis) had a profit after tax (PAT; before minority interest) of Rs 811 crore on total income (net of interest expenses) of Rs 11,063 crore in the fiscal 2019, against a PAT of Rs 693 crore on total income (net of interest expenses) of Rs 8504 crore for fiscal 2018.

ABCL (on a standalone basis) reported a loss of Rs 9.6 crore and total income of Rs 178 crore in the fiscal 2019, against a PAT of Rs 36 crore and total income of Rs 165 crore in fiscal 2018.

Key Financial Indicators
As on / for the year end   2019 2018
Total Assets (Reported) Rs crore 1,09,703 93,714
Total income (net of interest expenses) Rs crore 11,063 8,504
Profit after tax Rs crore 811 693
Gross NPA (ABFL) % 1.19 0.91
Gross NPA (ABHFL) % 0.67 0.53
Return on equity % 8.0 7.6
Gearing Times 5.1 4.6
Above figures are as per IndAS

Any other information:
ABCL's key lending arms, ABFL and ABHFL, had comfortable reported asset quality metric with gross NPAs at 1.19% and 0.67% as on March 31, 2019 (0.91% and 0.53% as of March 31, 2018). However, given the current evolving liquidity situation since September 2018 for non-banks, asset quality on exposures such as developer loans, loans against property (LAP), loans to micro, small and medium enterprises (MSME), would be a key monitorable. This stems from sensitivity of borrowers of such loans to an environment of prolonged liquidity tightness. Thus, while currently delinquencies in these loans are not high on account of the strong credit appraisal and risk mitigating mechanisms put in place, it is possible that over a period of time if the liquidity situation does not stabilise there could be asset quality challenges. 

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs. Crore)		 Rating Outstanding
with Outlook
NA Commercial Paper NA NA 7-365 Days 2700 CRISIL A1+
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rational for consolidation
Aditya Birla PE Advisors Private Limited Full Subsidiary
ABCAP Trustee Company Pvt. Limited. Full Subsidiary
Aditya Birla MyUniverse Limited Full Subsidiary
Aditya Birla Financial Shared Services Limited. Full Subsidiary
Aditya Birla Trustee Company Private Limited Full Subsidiary
Aditya Birla Insurance Brokers Limited Full Subsidiary
Aditya Birla Money Mart Limited Full Subsidiary
Aditya Birla Money Insurance Advisory Services Limited Full Subsidiary
Aditya Birla Sun Life Trustee Private Limited Partial* Joint Venture
Aditya Birla Wellness Private Limited Partial* Joint Venture
Aditya Birla Health Insurance Co. Limited Full Subsidiary
Aditya Birla ARC Limited Full Subsidiary
Aditya Birla Stressed Asset AMC Private Limited Full Subsidiary
ABCSL - Employees Welfare Trust Full Subsidiary
ABARC-AST-001-Trust Full Subsidiary
Aditya Birla Sun Life AMC (Mauritius) Limited Partial* Joint Venture
Aditya Birla Sun Life Asset Management Company Pte. Limited, Singapore Partial* Joint Venture
Aditya Birla Sun Life Asset Management Company Limited, Dubai Partial* Joint Venture
Aditya Birla Sun Life AMC Limited Partial* Joint Venture
Aditya Birla Sun Life Insurance Company
Limited		 Full Subsidiary
Aditya Birla Sun Life Pension Management Limited Full Subsidiary
Aditya Birla Housing Finance Limited Full Subsidiary
Aditya Birla Finance Limited Full Subsidiary
Aditya Birla Money Limited Full Subsidiary
*Equity accounting
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  2700.00  CRISIL A1+      04-06-18  CRISIL A1+  26-12-17  CRISIL A1+    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Securities Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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